Drafting Reps and Warranties: The Blueprint for Precision in M&A

Representations and warranties (reps and warranties) are the backbone of trust and risk management in any M&A deal. Drafting them effectively requires a mix of technical skill, foresight, and attention to detail. And here are six practical tips to guide you:

1. Start with the due diligence findings:

Think of due diligence as your blueprint. Everything uncovered during due diligence - legal, tax, operational, or technical - should guide what goes into the reps and warranties. For example, if there are concerns about compliance or ownership, make sure they are directly addressed in the agreement.

2. Be specific, not generic:

Avoid vague language. For instance, if the company’s key asset is a factory, don’t just say “The seller owns the factory”. Go deeper and include specifics like ownership certificates and confirm that the factory’s ownership and use do not depend on third parties or shareholders. Being detailed can prevent misunderstandings later.

3. Define key qualifiers:

Terms like “materiality”, “knowledge” and “ordinary course of business” might seem technical, but they are deal-makers (or breakers). Clear, context-appropriate definitions ensure the provisions function as intended without creating ambiguity.

4. Think about the future:

Deals do not stop evolving just because they are signed. Some warranties might need to cover future events. For example, the seller might need to guarantee that no unexpected changes (like a major lawsuit) will occur before the deal closes. Adding a rectification clause gives the seller room to fix issues, keeping the deal on course.

5. Plan for breaches:

Let’s face it, sometimes things go wrong. Breaches happen, even with the best-drafted warranties. That is why you need to specify remedies clearly. Will the buyer receive compensation? Will the purchase price be adjusted? Linking breaches to clear outcomes like financial losses makes everything more straightforward.

6. Keep it local – Crucial tip for those reading till the end:

In Vietnam, not everyone is familiar with reps and warranties, especially sellers. If you are acting for the buyer, take the time to adapt these provisions to fit the local market. Avoid copying clauses straight from other jurisdictions - it might confuse the seller and slow things down. Clear, simple, and localized language works best.

Drafting reps and warranties is about more than technical skill – it is about creating clarity and fairness. At Indochine Counsel , we specialize in crafting precise, actionable provisions that stand up to scrutiny.

In our next post, we will discuss strategies for negotiating reps and warranties effectively. Stay tuned!

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Author: V? Hoàng - Associate | Deputy Head of Projects & Infrastructure

Pham Hoang Vu is a Vietnam-qualified associate at Indochine Counsel and deputy head of the firm’s Projects & Infrastructure practice group. Since joining the firm in early 2019, he has worked with a diverse range of clients across various industries, including education, renewable energy, fintech, hospitality, and manufacturing. Notable clients that Vu has worked with include EQuest Education Group, NativeX, Dong Phuong Group (The Adora), Grab Vietnam, 2C2P, Hongshi Group, REPDC Green, SUN Energy, Sembcorp Energy, Athena Energy, Rheem Australia, Semco Maritime and Mermaid Maritime.

#MergersandAcquisitions #Vietnam #BusinessLaw #Representations #Warranties